WRB-West Associates, Inc. v. Madison Addition Investments Ltd. Partnership

NO. 94-355
IN THE SUPREME COURT OF THE STATE OF MONTANA
1995
WRB-WEST ASSOCIATES, INC., a Texas
Corporation; and WRB-WEST ASSOCIATES,
JOINT VENTURE, a Texas Joint Venture,
Plaintiffs and Appellants,
v.
MADISON ADDITION INV
INVESTMENTS LIMITED
PARTNERSHIP, an Idaho Limited
Partnership; JOHN COSTELLO; JERALD S.
SCHMIER; FRED J. HAHN; RICHARD G. HAHN;
ROCCO P. CIFRESE, M.D.; SARA ASHMAN
CIFRESE, M.D.; P.A. PENSION TRUST;
ROBERT E. FARNAM; WILLIAM D. FALER;
FALER:
CHARLES A. HOMER; BRUCE SOELBERG; FRANK
GUSTIN:
GUSTIN; GAYLORD V. SMITH; KEVIN T.
V. SMITH
SULLIVAN; TONY MARCON; and CHUCK BECK,
SULLIV
Defendants, Respondents,
and Cross-Appellants.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Larry W. Moran, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Michael J. Lilly, Berg, Lilly, Andriolo
& Tollefsen, Bozeman, Montana
For Respondents:
John G. Crist, Dorsey & Whitney,
Billings, Montana (for Madison Addition
Investments and John Costello)
James M. Kommers, Kommers, Kasting & Roth,
Bozeman, Montana (for Individual Limited
Partners)
Submitted on Briefs: December 22, 1994
Decided: April 25, 1995
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
Plaintiffs WRB-West Associates, Inc., andWRB-West Associates,
Joint Venture, filed this complaint in the District Court for the
Eighteenth Judicial District in Gallatin County to recover damages
from the defendant, John Costello, which it alleged were caused by
breach of Costello's fiduciary duty. Following a nonjury trial,
the District Court found that Costello had no fiduciary duty to the
plaintiffs and entered judgment for the defendants. Plaintiffs
appeal from the District Court's findings of fact, conclusions of
law, and judgment. We affirm the District Court.
The dispositive issue on appeal is:
Did the District Court err when it concluded that John
Costello did not have a realtor/client relationship with the
plaintiffs in 1989?
FACTUAL BACKGROUND
In the early 198Os, Lewis Robinson and Robert Russell formed
West Associates Limited Partnership to develop the Madison Addition
property. The Madison Addition is a subdivision of single family
and duplex lots, and planned unit developments located in West
Yellowstone. West Associates sold the Madison Addition property to
WRB, Inc., and WRB-JV in 1984. Lewis Robinson and Albert Walker
were initially the principal shareholders in WRB, Inc., and the
principal partners in WRB-JV. As a result of the sale in 1984,
WRB, Inc., owned the single family and duplex lots in the Madison
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Addition, and WRB-JV owned the planned unit development (PUD)
property located in that subdivision.
Costello was a licensed real estate broker in West Yellowstone
with whom WRB, Inc., executed a written listing agreement in 1985.
It consisted of three pages. The first page was prepared by
Robinson and provided that the term for the agreement would be from
May 1, 1985, to November 1, 1985. Costello prepared an addendum to
the agreement which specifically limited his obligations to the
term of the listing agreement. After the agreement expired, no
additional agreement was executed and Costello sold no real estate
for WRB, Inc.
On January 16, 1985, WRB-JV and Costello executed an agreement
which authorized Costello to act as a broker for one of the four
PUDs owned by WRB-JV. That agreement expired, by its terms, on
January 14, 1986. No further agreement was executed by those
parties after it expired.
In October 1984, WRB, Inc., and WRB-JV (referred to
collectively as WRB) had borrowed $4,200,000 from Deseret Federal
Savings and Loan to finance development in the Madison Addition.
Repayment was secured by a mortgage interest in the Madison
Addition property.
In 1988, WRB failed to make the loan payments agreed upon and
Deseret filed an action to foreclose on the secured property. At
the time of the initial foreclosure action, WRB still owed over
$Z,OOO,OOO to Deseret. In addition, WRB was substantially indebted
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to other creditors whose loans were also secured by the same
property. In 1988, an appraisal of the Madison Addition property
indicated a value of only $1,057,000.
In 1989, Costello learned that Deseret was selling its note
and mortgage on the Madison Addition property for the amount of the
1988 appraisal. Costello contacted others and suggested that they
purchase the note and mortgage. Together they formed a limited
partnership known as Madison Addition Investments Limited
Partnership (MAILP), which ultimately purchased the note and
mortgage for $1,057,000. The purchase and sale was completed on
September 11, 1989.
On September 7, 1989, the WRB entities filed a petition for
Chapter 11 bankruptcy protection. However, the Chapter 11 plan
failed when WRB was unable to sell the necessary number of lots to
fund it. Therefore, the bankruptcy proceeding was dismissed and
the stay of foreclosure proceedings vacated. MAILP concluded
Deseret's foreclosure action; obtained a judgment against WRB;
purchased the Madison Addition property at foreclosure sale; and,
after selling individual lots, obtained a deficiency judgment.
In this suit, the WRB entities alleged that their broker/
seller relationship with Costello extended to 1989, and therefore,
that he had a fiduciary relationship which was breached when he
negotiated the purchase of their note from Deseret. Although no
written agreement was in effect at that time, WRB alleged that the
previous agreements were extended based on the fact that Costello
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continued to act as WRB's broker. They alleged that because of
Costello's breach of his fiduciary duty, they were denied the
opportunity to purchase their own note for the amount paid by
MAILP, and thereby, lost the opportunity to reduce their liability
by $2,000,000. However, the District Court held that based on the
statute of frauds there could be no real estate brokerage
relationship, and found that the last agreement between the parties
expired by its own terms in 1986. The District Court also held
that Costello's conduct was not sufficient to establish a broker/
seller relationship. WRB appeals from the District Court's
findings of fact, conclusions of law, and judgment.
DISCUSSION
Did the District Court err when it concluded that John
Costello did not have a realtor/client relationship with the
plaintiffs in 1989?
We review a district court's findings of fact to determine
whether they are clearly erroneous. Interstate Prod Credit Ass’n v. D&aye
(1991), 250 Mont. 320, 322, 820 P.Zd 1285, 1287. In doing so, we
first consider whether the findings are supported by substantial
evidence. If the findings are supported by substantial evidence,
we determine if the district court misapprehended the evidence.
Finally, if the findings are supported by substantial evidence, and
that evidence has not been misunderstood, we may still conclude
that a finding is clearly erroneous if a review of the record
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leaves this Court with a definite and firm conviction that a
mistake has been made. DeSaye, 820 P.2d at 1287.
We review conclusions of law to determine whether they are
correct. Inrekfurriage ofBarnard (1994), 264 Mont. 103, 106, 870 P.2d
91, 93 (citing InreMurriageofBurris (1993), 258 Mont. 265, 269, 852
P.2d 616, 619).
WRB contends that the District Court erred by concluding that
Costello was not their realtor in 1989, and therefore, had no
fiduciary duty that could be breached.
The court found that no written agreement existed in 1989, as
required by § 28-2-903(l), MCA, and that the previous written
agreements were not extended because the parties had not satisfied
the requirements of 5 28-2-1602, MCA, for altering a contract by
extending its term. The court concluded that the parties could not
have created an employment agreement by conduct because the statute
of frauds prohibits such a result. Furthermore, the court found
that even if a contract could be extended or created by conduct,
the evidence was not sufficient to prove the parties consented to
do so. We agree with the District Court's findings and
conclusions.
Section 28-2-903, MCA, provides in relevant part that:
(1) The following agreements are invalid unless the same
or some note or memorandum thereof is in writing and
subscribed by the party to be charged or his agent:
. . .
(e) An agreement authorizing or employing an agent
or broker to purchase or sell real estate for
compensation or a commission.
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Section 28-2-1602, MCA, provides that "[a] contract in writing
may be altered by a contract in writing or by an executed oral
agreement, and not otherwise." The District Court correctly found
that there was no written listing agreement, nor a written
modification of the previous agreement in effect between the
parties in 1989.
We have previously held that a listing agreement must be in
writing and cannot be orally extended. Kraji v. Hodson (1992), 254
Mont. 262, 264, 836 P.2d 1234, 1236. In order to be enforceable,
a listing agreement, and any subsequent modification of that
agreement's terms, must be reduced to writing and signed by the
party to be bound thereby. Carnell V. Watson (1978), 176 Mont. 344,
347-40, 578 P.2d 308, 310. We have also recognized that a real
estate broker does not obtain general authority, but has only that
authority specifically authorized by a contract. Martin v. Vincent
(1979), 181 Mont. 247, 251, 593 P.2d 45, 47.
WRB contends that based on dicta in Property Brokers, Inc. v. Loyning
(19821, 201 Mont. 309, 312, 654 P.2d 521, 523, an exception to the
general rule may apply if the surrounding circumstances indicate
that the parties waived the expiration provision in a listing
agreement. We cited Snyderv. Schram (Or. 1976), 547 P.2d 102, for
that rule.
However, Snyder is factually distinguishable. In Snyder, the
plaintiff broker sued to recover a commission for a sale based on
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negotiations which commenced during the term of the agreement and
continued beyond its expiration date. That court recognized that
the defendants encouraged the plaintiff to continue negotiations,
that the plaintiff kept them informed, and that the defendants
eventually sold the property for substantially the same terms
negotiated by the broker. These facts were sufficient to establish
that the defendants waived the original termination date. Snyder,
547 P.2d at 104.
Substantial evidence supports the District Court's findings
that this exception does not apply to the facts of this case.
Costello did not offer to act as WRB's broker in writing or
orally in 1988 or 1989. He did no advertising of WRB property
during either year, and the only written communication between the
parties during that time was Robinson's January 12, 1988,
memorandum advising that single family and duplex lots were being
withdrawn from the market. Costello sold no property during that
period; no one offered to buy any of WRB's property from Costello
during that time; and he had little communication of substance with
any of WRB's principals during those two years. The District
Court's finding that the contractual relationship between Costello
and WRB was not extended to 1989 by Costello's conduct was
supported by substantial evidence and is not clearly erroneous.
Because the District Court's conclusion that Costello had no
brokerage relationship with plaintiffs during 1989 is dispositive
of plaintiffs' claims, and because we affirm that conclusion, we
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will not address the remaining issues raised on appeal, and by
cross-appeal.
The judgment of the District Court is affirmed
We concur:
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